While the AI market in China is experiencing explosive growth, there are expectations that related services like computing, big data, storage, and data centers will grow accordingly.
Despite this, Chinese Cloud Service Providers (CSPs) have yet to capitalize on the trend with tangible revenues from AI. According to a report by Nikkei Asia, China boasts over 100 large language models claiming to have over a billion parameters, but the AI frenzy has not translated into substantial benefits for Chinese CSPs.
No AI boost for Chinese CSPs
In the first quarter, Alibaba Cloud's revenue grew by only 3%. Tencent did not disclose specific figures but indicated an increase. Baidu Cloud remains a minor player in cloud service revenue and market share. In contrast, American giants like Microsoft's Azure, Google Cloud, and Amazon's AWS reported growth rates of around 30%.
Analysts observe that AI's contribution to cloud business revenue in China remains minimal, indicating that monetization is still in its early stages. The high costs associated with cloud services deter some companies from adopting AI swiftly.
Cloud AI growth on the horizon
Despite these challenges, Chinese CSPs remain optimistic about AI's potential.
Eddie Wu, the new CEO of Alibaba, emphasized that their public cloud business saw double-digit growth, with AI-related revenue experiencing triple-digit growth, although he acknowledged the growth is offset by adjustments in other projects.
Current cloud service demand mainly comes from enterprises operating foundational models, internet companies, financial services, and the automotive industry.
Meanwhile, Alibaba is heavily investing in Chinese AI unicorns, including ZhipuAI, 01.AI, Baichuan, MiniMax, and Moonshot, all of which utilize Alibaba Cloud services. Alibaba's proprietary model, Tongyi Qianwen, adopts an open-source approach, aiming to attract more developers to use Alibaba Cloud.
Baidu positions its ERNIE Bot as China's version of ChatGPT, claiming it is the most widely used model in China and inviting enterprises to participate in its ecosystem. Their "ModelBuilder" allows developers to fine-tune models, with over 10,000 models already created.
Tencent, on the other hand, significantly reduced its cloud business in 2023, shifting its strategy from gaining market share to focusing on cost savings and reducing losses. The top three cloud service providers in China are Alibaba Cloud, Huawei Cloud, and Tencent Cloud.
According to Canalys, China's cloud service market grew by 16% in 2023. Huawei Cloud experienced double-digit growth, and Tencent showed improvement after adopting a profit optimization strategy, but Alibaba Cloud faced challenges, possibly due to frequent organizational adjustments.
In addition, Alibaba Cloud's price cuts in April 2023 led competitors to follow suit, creating a dilemma between profitability and market competition for several providers. Canalys predicts that China's cloud service market will grow by 18% in 2024, driven mainly by enterprises upgrading their IT infrastructure and the demand for cloud computing power due to generative AI.
